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Arthur J. Gallagher (AJG) Shares Up 31% YTD: More Upside Left?
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Arthur J. Gallagher’s (AJG - Free Report) shares have gained 30.5% year to date, outperforming the industry’s increase of 16.9%. The Finance sector decreased 0.8%, while the Zacks S&P 500 composite gained 6.4% in the same period. With a market capitalization of $43.9 billion, the average volume of shares traded in the last three months was 1 million.
Solid performance of the Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities and effective capital deployment continue to drive this Zacks Rank #3 (Hold) insurer’s performance.
Earnings of this largest property/casualty third-party claims administrator and the fourth-largest insurance broker globally based on revenues increased 19.9% over the last five years, better than the industry average of 12.6%. It has a stellar record of beating estimates for the last 19 quarters.
Can It Retain the Bull Run?
The Zacks Consensus Estimate for Arthur J. Gallagher’s 2023 earnings is pegged at $8.71, indicating an increase of 12.5% on 12.8% higher revenues of $9.5 billion. The consensus estimate for 2024 earnings is pegged at $9.79, indicating an increase of 12.4% on 10.2% higher revenues of $10.5 billion.
The long-term earnings growth rate is currently pegged at 11.2%, better than the industry average of 10.7%. We estimate the bottom line to increase at a three-year (2022-2025) CAGR of 11.9%.
A sustained solid operational performance at its Brokerage and Risk Management segments should continue to drive its top line. We estimate the top line to increase at a three-year (2022-2025) CAGR of 11.7%.
While we project revenues at Brokerage to increase at a three-year (2022-2025) CAGR of 12.1%, Risk Management revenues are expected to be up 9.9% over the same time frame. Arthur J. Gallagher expects organic growth in the Brokerage segment between 7% and 9% in 2023 and between 12% and 13% at Risk Management.
AJG has an impressive inorganic growth story. The insurance broker has quite a strong pipeline with about $350 million of revenues, associated with almost 40 term sheets, either agreed upon or being prepared. AJG estimates M&A capacity of more than $3 billion through 2023.
Though we expect expenses to increase 5.9% in 2023, the adjusted net margin is projected to expand 60 basis points. AJG estimates the adjusted EBITDAC margin at Brokerage to expand between 60 and 80 bps in 2023 and increase more than 19% at Risk Management.
AJG expects a strong 2023 performance, given a sturdy organic outlook, margin expansion opportunities and an impressive M&A pipeline.
Banking on its operational excellence, AJG expects to continue to generate solid cash flow in 2023. The insurance broker also engages in effective capital deployment and thus increased dividends at a three-year CAGR (2020-2023) of 5.1%, with dividends currently yielding 1.1%, almost in line with the industry average. AJG also has $1.5 billion share buyback authorization remaining.
Stocks to Consider
Some better-ranked stocks from the insurance industry are Erie Indemnity (ERIE - Free Report) , Brown and Brown (BRO - Free Report) and Ryan Specialty Group Holdings (RYAN - Free Report) .
The Zacks Consensus Estimate for Erie Indemnity’s 2023 and 2024 earnings indicates a respective 26.1% and 13.6% year-over-year increase. ERIE shares have lost 12.8% year to date. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BRO’s 2023 and 2024 EPS indicates a respective 10.5% and 9.2% increase year over year. It carries Zacks Rank #2 (Buy). BRO delivered a four-quarter average earnings surprise of 1.19%. Shares have risen 12.1% year to date.
The Zacks Consensus Estimate for Ryan Specialty’s 2023 and 2024 EPS indicates a respective 15.7% and 23.3% increase year over year. It carries a Zacks Rank #2. RYAN delivered a four-quarter average earnings surprise of 2.98%. Shares have risen 2.4% year to date.
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Arthur J. Gallagher (AJG) Shares Up 31% YTD: More Upside Left?
Arthur J. Gallagher’s (AJG - Free Report) shares have gained 30.5% year to date, outperforming the industry’s increase of 16.9%. The Finance sector decreased 0.8%, while the Zacks S&P 500 composite gained 6.4% in the same period. With a market capitalization of $43.9 billion, the average volume of shares traded in the last three months was 1 million.
Solid performance of the Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities and effective capital deployment continue to drive this Zacks Rank #3 (Hold) insurer’s performance.
Earnings of this largest property/casualty third-party claims administrator and the fourth-largest insurance broker globally based on revenues increased 19.9% over the last five years, better than the industry average of 12.6%. It has a stellar record of beating estimates for the last 19 quarters.
Can It Retain the Bull Run?
The Zacks Consensus Estimate for Arthur J. Gallagher’s 2023 earnings is pegged at $8.71, indicating an increase of 12.5% on 12.8% higher revenues of $9.5 billion. The consensus estimate for 2024 earnings is pegged at $9.79, indicating an increase of 12.4% on 10.2% higher revenues of $10.5 billion.
The long-term earnings growth rate is currently pegged at 11.2%, better than the industry average of 10.7%. We estimate the bottom line to increase at a three-year (2022-2025) CAGR of 11.9%.
A sustained solid operational performance at its Brokerage and Risk Management segments should continue to drive its top line. We estimate the top line to increase at a three-year (2022-2025) CAGR of 11.7%.
While we project revenues at Brokerage to increase at a three-year (2022-2025) CAGR of 12.1%, Risk Management revenues are expected to be up 9.9% over the same time frame. Arthur J. Gallagher expects organic growth in the Brokerage segment between 7% and 9% in 2023 and between 12% and 13% at Risk Management.
AJG has an impressive inorganic growth story. The insurance broker has quite a strong pipeline with about $350 million of revenues, associated with almost 40 term sheets, either agreed upon or being prepared. AJG estimates M&A capacity of more than $3 billion through 2023.
Though we expect expenses to increase 5.9% in 2023, the adjusted net margin is projected to expand 60 basis points. AJG estimates the adjusted EBITDAC margin at Brokerage to expand between 60 and 80 bps in 2023 and increase more than 19% at Risk Management.
AJG expects a strong 2023 performance, given a sturdy organic outlook, margin expansion opportunities and an impressive M&A pipeline.
Banking on its operational excellence, AJG expects to continue to generate solid cash flow in 2023. The insurance broker also engages in effective capital deployment and thus increased dividends at a three-year CAGR (2020-2023) of 5.1%, with dividends currently yielding 1.1%, almost in line with the industry average. AJG also has $1.5 billion share buyback authorization remaining.
Stocks to Consider
Some better-ranked stocks from the insurance industry are Erie Indemnity (ERIE - Free Report) , Brown and Brown (BRO - Free Report) and Ryan Specialty Group Holdings (RYAN - Free Report) .
The Zacks Consensus Estimate for Erie Indemnity’s 2023 and 2024 earnings indicates a respective 26.1% and 13.6% year-over-year increase. ERIE shares have lost 12.8% year to date. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BRO’s 2023 and 2024 EPS indicates a respective 10.5% and 9.2% increase year over year. It carries Zacks Rank #2 (Buy). BRO delivered a four-quarter average earnings surprise of 1.19%. Shares have risen 12.1% year to date.
The Zacks Consensus Estimate for Ryan Specialty’s 2023 and 2024 EPS indicates a respective 15.7% and 23.3% increase year over year. It carries a Zacks Rank #2. RYAN delivered a four-quarter average earnings surprise of 2.98%. Shares have risen 2.4% year to date.